IBM chief talks change, and a little politics

IT executives are a funny group. They are usually like broken Magic 8 balls. Whenever you shake them up - perhaps with a financial crisis or a new political reality - they always say the same thing: more IT will fix our problems. But every now and then when you shake the ball, you get a slightly different set of answers than you expected.

That's what happened last Thursday when IBM's chairman and chief executive, Sam Palmisano, gave a speech at the Council on Foreign Relations in New York, only two days after the presidential election in the United States. Change was - and still is - in the air, and that was one of the themes of Palmisano's speech. You can see the draft of the speech, which Palmisano more or less stuck to, at this link, and you can watch the video of the speech here.

The more interesting bit of the event hosted by the Council was when Palmisano sat down with Robert Rubin, the former Treasury Secretary and co-chairman of Citigroup, for a Q&A session. While Palmisano is not known for being a great orator - which is why we so rarely see him speaking - he is a lot more comfortable sitting down and taking questions. Perhaps because this was not, strictly speaking, an IT setting, Palmisano was pretty frank in his comments about the problems the world faces and how we might start solving them. If you know anything at all about IBM, you understand how unusual this is. There's a joke in PR circles that the easiest job in the world is being the press relations person for IBM's chairman and CEO. He only speaks four times a year, and that is a canned statement in a press release, and once at the annual financial analyst summit. Other than that, excepting many meetings off the record with business and political leaders around the world, the Biggest Bluer says nadda.

In his opening remarks to the Council, Palmisano set the very familiar stage we have been watching for months. "It is an extraordinary moment in time, with a major political transformation in the United States, economic turmoil, financial markets restructuring themselves. Certainly there is a little going on," he said with a little sarcasm.

"But there is also, I think you will agree, an acute feeling for a need for leadership. I think political leaders are not the only ones who have been handed the mandate for change. Leaders of businesses and institutions everywhere confront the unique opportunity to transform the world that we live in," Palmisano said, for reasons we may not like. "But this is only one in a series of events in the first decade of the 21st century, and I think it has been a series of wake-up calls in the world." A world, he explained, that is globally integrated, and in a way that means more than just the movement of data and capital across national boundaries.

The world, at least metaphorically, has become flat, but Palmisano argues that it is also becoming smarter. Sensors are being put into supply chain, healthcare systems, across cities and in natural systems. Soon there will be two billion people on the internet, which can be used to link all the instrumented aspects of the physical world and applications and their systems together. If you don't like SkyNet, then you won't like Palmisano's third assertion much, which is that devices connected to the internet and private networks are getting smarter - turning mountains of "data" into something Palmisano called "intelligence". And it is this intelligence that Palmisano wants to bring to bear on the healthcare, energy, distribution, transportation, and financial markets.

Speaking of the meltdown, this is what IBM's chairman had to say about the cause of the financial crisis, and it is exactly the kind of answer you would expect from an IT vendor: "There will be many books written about this. But I think that there is one thing that we would all agree with at this point in time, and that is that the financial institutions understood how to spread risk, but they were not able to track risk. And that lack of certainty - that lack of knowing, lack of precision - underminded confidence."

One might argue - and I think a lot more effectively - that the financial institutions were not interested in tracking risk at all, a situation that all the computers in the world can't help. I would further argue that at the very least, financial institutions engaged in any derivatives trading should have been compelled by regulations to track the risk from the beginning. With 20/20 hindsight, we probably would have been better off if investment banks were not allowed to engage in securitizing bad mortgages in the first place, and maybe mortgage companies should have required that people could actually pay their mortgages as well before inking the deal. Risk was separated from responsibility in so many different ways that a lot of people should be going to jail. But, living in a Depression, if it should come to that, will perhaps be punishment enough. Our children and grandchildren will be the judge of that.

In the Q&A session after the speech, Palmisano talked about the credit crunch, and said he was not overly concerned. "The money today - that is a short-term issue. Clearly there are guys that don't have the credit capacity that have had in the past. And I assume that Bob and his colleagues will have fixed that," he said to much laughter. "I mean, I really have a lot of confidence. Then, we're going to get back to the real issues again."

True to his company's name, Palmisano is required by his job title to be a globalist, and he is not entirely happy about the prospect of nationalism and protectionism in the wake of economic downturns around the world. What are companies to do, given the economic climate?

"Let's assume you have a solid business model and a balance sheet, because if you don't, you don't get to play," Palmisano explained. "Assume you have managed yourself reasonably well. You could look at the economic data - we have all seen it - and you could hunker down. I'm not saying everyone is not going to go on a little bit of a diet, because you have to protect your balance sheet, you have to be cost competitive. The other way to play it is to say that these are huge opportunities, because these problems still need to be solved, and they need to be solved."

What Palmisano was referring to were issues with supply chains, energy, healthcare, financial services, and so on - a lot of the same topics that were just discussed in the American election and around kitchen tables the world over. And don't expect Big Sam to be going into politics any time soon, though: "I never will be. I am not that kind of personality," he said jokingly. "You need patience and resiliency and I am just a working guy, four kids, very stable, two dogs..."

But Palmisano, like many Americans, tried to make the case that infrastructure investment was the way to go to dig us out of the financial hole we are in. He explained that the infrastructure investments during the New Deal era and following World War II were "stimulative", but that the infrastructure investments created "the most competitive, resilient economy in the world and the highest standard of living".

This kind of argument ignores the fact that the United States could run the global table and set the terms of economic engagement after World War II, and did so at Breton Woods - a scenario that is hardly plausible today. And maybe, just maybe, not even desirable anyway.

Palmisano said there was no question that there was going to be some sort of additional economic stimulus (presumably in the United States, but he could have meant elsewhere). But he argued, as the chairman and CEO of an IT company, that this time around, instead of investing in bridges and roads to try to attack an unemployment problem, the infrastructure that we build out should be digital.

"We could always go to the past - we could build some bridges, put up protectionist walls, let's not trade because unemployment could hit seven per cent or eight per cent, and that's a real concern," he said. "But someone is going to stand up and say, 'The future is about building out this infrastructure that is going to support the long-term competitiveness of the United States, and that is digital infrastructure.'" Palmisano was sitting down at the time, but it was him who said it. Which is what you would expect him to argue.

But this is what he continued to say, which was interesting: "And by the way, this will solve problems. So not only do we talk about the affordability of healthcare, but now we look at the effectiveness of care."

He talked about establishing standards for healthcare procedures and coping with tort reform. Healthcare providers get very nervous about standards because they increase the likelihood of lawsuits (and I would say, the effectiveness of lawsuits against doctors who do not adhere to standards). "I mean, the balance sheet is broken - and that's the issue. You have to do both things, not just redistribute income so more people can participate, which should be done. But if you do not deal with the quality and cost, it is a never-ending cycle."

Palmisano said that he was baffled as to why each of these issues were not solved the way businesses do it every day: you get the brightest people in the field from business, government, and other interested bodies together, you tell them to leave their agendas at the door, and you don't let them out of a room until they have come to some sort of mutual agreement about a solution. Yes, this sounds an awful lot like politics, doesn't it?

Sticking with the healthcare theme, and obviously referring to President-elect Barack Obama, Palmisano said there was a shot at the desire for change to be used to fix problems such as the healthcare system in America. "We're going to come out with things, and we're going to bet on the best salesman in the world. And I think we've found a very good salesman," Palmisano said. "Again, I am not arguing political persuasion, but we do have a salesperson today that could lead, that could sell this case. Maybe we haven't had a salesperson before that could."

Earlier, in answering a different question, Palmisano said he had waited in a very long line in Greenwich, Connecticut, to cast his vote in the election - something that he really didn't have time to do. I leave it to you to infer who IBM's top dog voted for.

Palmisano knows a thing or two about arguing for change and hope and implementing one in the environment of the other, and he reminded everyone attending the Council meeting of this. "Now, I know that the mainframe was the only way to compute," he explained, tongue in cheek. "IBM went from 407,000 people down to 212,000 based on defending the past. Now, we are back to 400,000 because we are defending the future. How comforting was it to those nearly 200,000 people that we were intellectually correct? Technically, we were - today, the mainframe is one of the fastest growing platforms. It's OK to be hopeful, but you need more. As I like to say to my colleagues at IBM, we have to be somewhat right. We have shareholders. I can't just talk about the future - we need to be correct about the future. And our research geniuses tell me they are always thinking about the future, I tell them they need to be correct, not just thinking all the time and getting their patents and Nobel prizes."

Sure sounds like Big Sam is looking for a cabinet position, despite his lack of temperament. Perhaps Secretary of Commerce? ®